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Tenure Profiles and Efficient Separation in a Stochastic Productivity Model

  • Sebastian Buhai

    ()

  • Coen N. Teulings

We develop a theoretical model based on efficient bargaining, where both log outside productivity and log productivity in the current job follow a random walk. This setting allows the application of real option theory. We derive the efficient worker-firm separation rule. We show that wage data from completed job spells are uninformative about the true tenure profile. The model is estimated on the PSID. It fits the observed distribution of job tenures well. Selection of favourable random walks can account for the concavity in tenure profiles. About 80% of the estimated wage returns to tenure is due to selectivity in the realized outside productivities.

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Paper provided by Central European Labour Studies Institute (CELSI) in its series Discussion Papers with number 7.

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Date of creation: 28 May 2013
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Handle: RePEc:cel:dpaper:7
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  1. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 439-79, May.
  2. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  3. repec:dgr:uvatin:20000009 is not listed on IDEAS
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